KPO Demystified 1. What is Knowledge Process Outsourcing? Knowledge Process Outsourcing (KPO) is the outsourcing of high-end business functions in an organization. These functions include both core and non-core activities. How it is different from Business Process Outsourcing 2. KPO Value Chain examples Low-end High-end Back office Analysis and Statistical Synthesis/Reports/Presentations support, Data Modelling Collection, Data Business Entry, Secondary Analytics Research Data Entry, Patent Search, Contract Litigation Support, Legal Legal Transcription Drafting Research 3. 4. What functions does it cover?
KPO being a nascent segment, there is no universal consensus on the processes that can be classified within the ambit of KPO. Currently, the following knowledge functions are outsourced to varying extents. Segment Segment breakdown Key skills requirement Legal Services Patent search, contract drafting, Proficiency with English, legal research, litigation support, knowledge of the client country secretarial work, legal coding, laws. transcription Engineering Services 2D and 3D modelling, conversion, CAD/CAM, drafting, modelling, finite analysis, value engineering, product design. dynamic analysis, etc. Content Development & Data warehousing, content English writing skills, Publishing planning, proofing, pre-press journalism/editing experience, production, writing, editing, knowledge of design tools and designing, etc more. Market Research & Data Analysis Primary research, surveys, Analytical skills, knowledge of secondary research, statistical statistical tools, presentations, modelling, report writing, MBA, Econometrics. synthesis. Financial Research & Analytics Industry research, company Knowledge of financial markets, valuation, equity research & statistical tools and a masters in analysis, due diligence, financial finance – CFA, MBA finance, etc. reporting, risk assessment Biotech/Pharmaceuticals Clinical research, gene mapping, Masters in science, medicine etc. drug discovery, etc. Education & Training Instructional design, courseware Subject matter expertise, development teaching experience.5.6. How big is the sector globally? How big will it get? There are varying estimates on the growth of the global KPO sector. These estimates range from $10 billion (ASSOCHAM) to $17 billion (Evalueserve), by 2010. Given below is an estimate of the growth of various segments within KPO in India. Segment Revenue (2006-07)* Expected Revenue (2010-11)* Banking, Securities & $175 $600 Insurance Research Data Management, Search & $590 $2500 Analytics Business & Consulting $125 $450 Research Human Resources - Research $25 $120 & Analytics Market Research & Comp. $175 $460 Intelligence Eng. Design & Architecture, $315 $950 CAD Game-design & Animation $245 $900 Services Legal, Paralegal & Intellectual $95 $500 Property Scientific & Medical Content $165 $100 Publishing Remote Education. Publishing, $300 $1,000 Tech. Writing Contract Res. Orgs, Biotech $580 $2,500
Services Translation and Localization $75 $360 Marketing & Sales Support, $20 $150 Answering RFPs Remote Logistic services & $40 $160 Procurement Network Optimization & $125 $450 Analytics TOTAL $3,050 $11,200 *In millions Source: Evalueserve 7. 8. India – the most preferred KPO destination India is expected to corner a lion’s share of the overall KPO market. By 2010, India is expected to account for almost 70 percent of global market. India’s dominance – though imminent in the near future – could be severely tested by some of the emerging destinations such as the Philippines, Russia, Ukraine, Poland, China, South Africa, Singapore, Ireland, Australia, Canada and Wales. 9. Key Issues in the KPO sector Skills Acquisition and Retention One of the decisive factors for the growth of any destination will be the ability to acquire the right kind of talent and retain it. For India, it will be a major challenge with high annual churn rates and wage inflation playing dampener. In fact, UK based research firm RocSearch has tempered the optimism with its findings that the Indian KPO market may only grow up to $10 billion by 2010 as opposed to the industry estimates of $12 billion. The corresponding number of professionals employed in this sector will be only 100,000 as opposed to the predicted 250,000. On the other hand, destinations such as Australia and Canada have a substantial pipeline of skilled talent waiting for the opportunity. While it is true that outsourcing of knowledge processes relies more on intellectual arbitrage more than cost arbitrage, a high wage inflation rate and turnover may ward off clients. IP Management & Data Security Outsourcing high-end functions to an offshore location involves the exchange of confidential information, especially in segments such as financial services and biotech. In such a situation, vendors need to have stringent internal measures to prevent any misuse or trading of sensitive information. The government on its part should come down heavily on any IP or data theft or infringement. Training and Development Knowledge processes require a high degree of specialization. In addition to the required educational degree, professionals also need to be abreast of the laws or methodologies governing the process in the client destination. Be it legal processes, pharma outsourcing or financial services outsourcing, any knowledge process requires familiarity with the concerned domain as it exists in the client country.Value Chain AnalysisThe value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter inhis book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate inthe total value delivered by an organisation.The margin depicted in the diagram is the same as added value. The organisation is split into primary activities and supportactivities. Also see value curve.Primary Activities.Inbound Logistics.Here goods are received from a companys suppliers. They are stored until they are needed on the production/assembly line. Goodsare moved around the organisation.Operations.
This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing ofbooks/videos/games by an online retailer, or the final tune for a new cars engine.Outbound Logistics.The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.Marketing and Sales.In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers.This area focuses strongly upon marketing communications and the promotions mix.Service.This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.Support Activities.Procurement.This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price forpurchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normallybe done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurementaims).Technology Development.Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect andsustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing,Customer Relationship Management (CRM), and many other technological developments.Human Resource Management (HRM).Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training anddevelopment, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRMstrategy.Firm Infrastructure.This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), andother mechanisms for planning and control such as the accounting department.